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Export Processing Zones

An export processing zone (EPZ) is generally set up by a government to promote and capture foreign direct investment, international trade, technological transfer, and industrial development. These zones provide preferential treatments and incentives to attract foreign enterprises and investors. EPZs are also known as free trade zones (FTZs), special economic zones (SPZs), free zones (FZs), industrial estates, free ports, urban enterprise zones, and other terms.

History and Developmental Functions of EPZs

The concept of EPZs originated in Spain in 1929. In the 1970s, EPZs became a global phenomenon as a developmental tool in low-income nations in Latin America, the Caribbean, Asia, and, to a lesser degree, Africa. By the 1980s, almost all developing countries had established at least one such zone.

The normal provisions are infrastructure, communication and financial services, elimination of trade barriers such as tariffs and quotas, exemptions from production and trade-related taxes and business regulations, friendly and simplified bureaucratic requirements and procedures, elimination of labor laws, and relaxation of environmental protections. Tax holidays, duty-free exports and imports, and unfettered repatriation of profits are regularly offered to foreign firms. EPZs are locations for foreign enterprises and nodes of international transportation.

The main objective for the host nations of EPZs is economic gain. These zones are the instruments to increase foreign currency earnings, upgrade production technology, enter the world market, and provide employment. With foreign investment concentrating in these zones, a multiplier effect to locally linked industries and a dispersal effect to the surrounding regions are expected. Innovation in international transportation and communication in the 1960s and 1970s allowed transnational corporations to lower production costs by outsourcing parts or all of the production to offshore locations. The division of the industrial production process, with corporate headquarters at home nations and production branches overseas, is the basis for EPZs. These zones are designed to absorb international branch operations. Globalization gives rise to selective international economic integration, and EPZs are the transnational connection points in developing nations. The flourishing of EPZ development since the 1970s is a spatial response to globalization.

Shenzhen Special Economic Zone (SEZ)

The Shenzhen SEZ in China was designated in 1979 when that country was transforming from a socialist to a market economy. It was a “window” through which to observe and learn from the free market operation and a “bridge” to the international economy. Although it has the same set of development objectives and provisions as other EPZs, the Shenzhen EPZ is unusual because it was the one of the first EPZs in China, where it served as an example of radical and systemic economic change.

Adjacent to Hong Kong, an international market economy free port, Shenzhen adopted trade regulations and industrial practices freely from its neighbor. In turn, Shenzhen's institutions, regulations, administration, and planning are used as models for the rest of China as the country opens up its economy to the world. Connecting to the global economy through Hong Kong initially, Shenzhen has grown with export manufacturing and spread the developmental effects to its northern region, the province of Guangdong. The SEZ has industrialized the province's economy and uplifted it from being one of the poorest provinces in the socialist era to one of the richest in the market era. Shenzhen not only has fulfilled successfully the promises of the EPZ but is also the transference point of foreign economic ideas and practices to the nation, playing a major role in marketing and internationalizing China's economy.

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